Wow, having liability on opinion letters on securitizations will lead law firms to try to pass off distorted readings of court decisions to save their bacon.
The latest example is K&L Gates, one of the signers of the executive summary of an American Securitization Forum paper issued last November. It endeavored to defend securitization industry practices that have led securitization trusts which own mortgages to have difficulty foreclosing. Even thought its claims are increasingly being rebutted in court decisions, the ASF cohort seems to believe that if it tells the Big Lie long enough and loudly enough, the problem will go away. But judges have this funny habit of being very independent, so I sincerely doubt this strategy has any chance of succeeding.
The K&L Gates paper in question tries to say, true to the latest ASF party line, that the Massachusetts Supreme Court Ibanez decision, which is clearly a setback to the securitization industry (how big depends on how much in influences the thinking in the courts of other states), is actually a victory. It achieves this remarkable feat by omitting key language in the decision from its discussion.
As NC regular readerOfTeaLeaves remarked,
Note to self: don’t ever hire one of the securitization attys. They’re only going to tell me what they think that I want to hear. Scary.
The misrepresentation of the Ibanez decision starts at the very top of a K&L piece released yesterday:
Language in securitization agreements providing for the present conveyance of specifically identified mortgages is sufficient to effect assignments of mortgages under the unique aspects of Massachusetts law….The most important aspect of the SJC’s ruling is its finding that securitization agreements that transfer pools of mortgage loans can effectuate the assignments of the mortgages for those mortgage loans where the transferee and the loans at issue are identified in the agreements. According to the SJC, such assignments of mortgages are sufficient to provide the assignee the authority to foreclose under Massachusetts law.
In other words, K&L Gates is trying to uphold the position that the pooling and servicing agreement in and of itself achieves an assignment of mortgages even when none of the other steps set forth in the pooling and servicing agreement have actually been completed. We’ve addressed this argument long form elsewhere, but we’ll stick with Ibanez today.
The clearly-worded decision says no such thing. This is what it does say:
Where a pool of mortgages, with a schedule of the pooled mortgage loans that clearly and specifically identifies the mortgage at issue as among those assigned, may suffice to establish the trustee as the mortgage holder.
First, note the use of the word “may”. This is hardly definitive, it can be read in isolation as the the SJC saying this was arguable (as in “may” = “does”) or that they had considered the argument but were not reaching a firm conclusion.
But you can’t even make the more aggressive reading of that sentence, since the next one states:
However, there must be proof that the assignment was made by a party that itself held the mortgage.
And later, the ruling states:
Even if there were an executed trust agreement with the required schedule, US Bank failed to furnish any evidence that the entity assigning the mortgage – Structured Asset Securities Corporation — ever held the mortgage to be assigned. The last assignment of the mortgage on record was from Rose Mortgage to Option One; nothing was submitted to the judge indicating that Option One ever assigned the mortgage to anyone before the foreclosure sale
This certainly seems to say the chain of title represented in the PSA must be followed by the actual mortgage documents if you want to use the PSA as evidence of standing. Since this appears almost never happened, it will prove quite difficult to cure. For the depositor to record the assignment into the trust to “cure” the standing, the depositor must show how he got title, and so on.
So we are back to square zero, which is needing to look at the chain of assignment and whether the parties that made the assignment were “holders” which generally requires both physical possession and valid ownership. That does not leave the securitization industry in a very pretty position.